Europe’s wind industry flags further weakness in 2023 despite energy demand
The European wind industry has warned of continued difficulties in 2023 as *high materials costs and slow approvals for new wind power projects drag back profitability, despite rising demand for renewable energy…
The effects of the Russian war on Ukraine drove up prices for energy and important raw materials such as steel last year, creating a perfect storm for the European wind sector.
Despite escalating demand from governments and customers for renewable energy as a result of the energy crisis, the slow EU and UK approval processes have created a backlog of projects and delayed new turbine orders.
Global green energy company Siemens Gamesa reported Thursday that it had lost a staggering $967 million during the three-month period from between October to December.
The Germany-based company, which dubs itself as “the global leader in offshore power generation,” noted the wind industry has faced various unfavorable pressures leading to negative growth in recent months and years, in its earnings report for the first quarter of fiscal year 2023 released Thursday morning. The company added that governments would need to further assist the industry to ensure future positive growth…
Siemens Gamesa stated that it is facing headwinds that include slow permitting, electric grid constraints and regulatory uncertainty. Such market conditions are, in turn, causing “sizeable losses” in the wind business, employment destruction and investment constraint.
GE’s wind turbine business is also reporting losses. Its the long lead times between when contracts are negotiated and signed and delivery. And contracts with inadequate cost escalators. Add in rising interest rates making financing projects more costly.
No doubt the escalator problem is being addressed in new contracts. But then you sign a blank check when you sign a contract. The final cost is unknown and profitability is uncertain.
Its ironic that wind turbines are sensitive to inflation, but that seems to be the case. How do you deal with that? Many projects are being reevaluated. May be threatened or renegotiated.
And this when we need much more investment in green energy.
Get the govt to guarantee cost increases will be covered. The govt is the one who mandates “clean power”, so put the increases on them–or no clean power investments due to unpredictable price increases.
Yes. The “Free Market” includes the right/power/authority to NOT undertake projects that are deemed too risky. Hence, if the govt wants it done, they will provide the appropriate guarantees, thus making the project(s) less risky. The govt already does this with flood insurance and mortgages (Fannie and Freddie).
The far easier way to do it is to put escalator clauses in the production contracts.
As it turns out, wind farm producers (at least) are already confronting the issue.
GE, Siemens, Gemesa and Vestas have confirmed in statements to Bloomberg and in recent calls with analysts that the push to rapidly develop more powerful turbines has led to challenges. The companies say they are focusing on improving manufacturing operations and have acknowledged that it’s time to tap the brakes on the introduction of designs. “Rapid innovation strains manufacturing and the broader supply chain,” GE CEO Larry Culp said. “It takes time to stabilize production and quality on these new products.”
It’s the Wild West. Eventually, and within a few years it will settle down. Some designs will be standardized, some vendors and or manufacturers will exit, and this should cease to be an issue. There’s almost nothing that launches out of the gate perfectly, the wind industry is no exception.
At the same time, Vestas sold and installed its first wind turbine in 1979 and went public 25 years ago.
“Operating in around 90 countries, Siemens Gamesa offers an extensive range of onshore wind turbine technologies to cover all wind classes and site conditions. By listening to our customers - and backed up by 40 years of experience - we know just what it takes to develop and manage a successful onshore project.”
Yes, they’ve been around a while. However the “push” for bigger, better, more, more has only been in the last decade (or less) which has led to ever more design changes and hurried construction.
I know that the “25 years” looks like a long time, but it was almost 20 years between the Model T and the Model A, more than 20 between the Motorola Brick and the iPhone, or between the invention of the jet and the commercialization of it (not to mention several crashes.)
It’s not a long time for an industry with significant engineering to shake out and have a 50-100 year future or more.
The project, due to begin production in 2026, won a government contract at auction with a minimum price guarantee, called a contract-for-difference (CfD), worth 37.35 pounds per megawatt hour (MWh) in 2012 prices, around 45 pounds/MWh today.
…Duncan Clark, Head of Orsted UK & Ireland said in a statement. “Industry is doing everything it can to manage costs on these projects but there is a real and growing risk of them being put on hold or even handing back their CfDs,” he said.
Not a surprise. All wind turbine manufacturers are reporting losses on contracts. Inflation has driven up costs faster than contracts anticipated. Long lead time makes accurate bidding difficult. New cost escalators can make projects costly, even unprofitable.
Who should take the risk? Govt? Companies say not us.
How much do we want green energy? Who is willing to pay for it?